SCED's speech at opening of the Third Asian Competition Law and Policy Conference (English only) (with photo)
************************************************************

Following is a speech by the Secretary for Commerce and Economic Development, Mr Frederick Ma, at the opening of the Third Asian Competition Law and Policy Conference today (December 10):

Ladies and Gentlemen, Good morning.

First of all let me thank you for inviting me to join you here today. The Asian Competition Law Conference is now firmly established as one of the leading events of its kind in the region, and I would like to congratulate Mark Williams and his team on putting together a very full and varied programme for the next two days.

Many of the world's leading economies have had competition laws in place for several decades. In recent years, up-and-coming economies in regions such as East Asia and Eastern Europe have also introduced such laws - and of course just a few months ago Mainland China introduced its Anti-Monopoly Law, which we will hear more about during this conference.

Clearly, this is a dynamic and evolving area of the law. It is also one on which there are strongly-held and diverse views. No doubt we shall hear many of these views presented and debated over the course of this conference.

This morning I would like to get the ball rolling by giving you an overview of where we currently stand on Hong Kong's competition policy. I hope that I can also offer you some insights into our latest thinking on the introduction of a new general competition law.

Hong Kong Situation - Public Consultation

This time last year, one of my colleagues spoke at this forum on our intention to review Hong Kong's competition policy in consultation with the broader community.

I am pleased to report that we have made good progress over the past year, beginning with the public consultation process, which we concluded in March. This process was interesting, for two reasons.

First, there were a large number of responses from the public to the questions that we raised in our consultation paper. For the most part, the responses demonstrated a good grasp of the key elements of competition policy, which suggests that there is a high level of interest and concern in our community about this issue.

Second, the reaction of the business sector on the whole was quite positive. There were understandably some concerns about the need to avoid excessive regulation and to minimise the burden of compliance - particularly for small firms. But there was also a general acceptance that some form of competition law was needed to ensure that our competition policy could be implemented effectively.

Overall, we received a clear signal from the public consultation exercise that there is a high level of support for the introduction of a general competition law in Hong Kong. This allowed us to make a clear commitment to proceeding with the preparation of such a law. However, as we all know: "the devil is in the detail". The task before us now is to translate the feedback from the public, and our own further research, into a law that will be effective and that will meet Hong Kong's particular needs.

Designing a New Law

Before talking about the detailed legislative proposals that we are now working on, it might be useful if I first briefly re-state our current competition policy.

At the conceptual level, our policy objective remains, in essence, the same as it has been since 1998. That is, to enhance economic efficiency and the free flow of trade, thereby also benefiting consumer welfare.

In his most recent policy address, the Chief Executive spoke about competition policy also in terms of Hong Kong's advantages, in particular, a level-playing field for business. He further emphasised that maintaining a free and competitive business environment is crucial to sustaining our economic vitality.

In designing the new competition law, we will adopt an approach that is consistent with these policy objectives. In other words, we will not target specific sectors, nor will we aim to overhaul market structures. Our intention is to develop a transparent and user-friendly regime that will nonetheless allow us to take firm action against conduct that lessens competition in the market.

Now to some of the details. I would not normally go into detail on an occasion such as this, but I know that there are many lawyers here today who are keen students of competition law, and I am sure that you will not mind if I briefly share a few of our preliminary thoughts with you all.

The Institutional Arrangements

One of the key elements in the successful implementation of the new competition law will be the establishment of a credible and effective competition authority. During the public consultation exercise, almost all respondents commented on how such an authority might work. There was a general consensus among respondents that a dedicated body needs to be established with a high degree of independence and a range of powers that would allow it to investigate possible anti-competitive conduct in a thorough and accountable manner.

Many respondents also stressed the importance of efficiency and consistency in dealing with breaches of the law. From this perspective, many took the view that the regulator should also have the power to determine whether or not an infringement had taken place, and where appropriate, to impose sanctions. This, of course, is an approach that is used in many jurisdictions, including the EU and the UK, and is similar to the regimes that we have in Hong Kong governing areas such as the telecommunications, broadcasting and securities industries.

However, while efficiency and consistency are important, there is also a need to ensure that proper checks and balances are in place. We will therefore take great care to ensure that the rights of parties under investigation are properly protected, and that full appeal channels are provided for. Ultimately, in putting forward an enforcement model for competition law in Hong Kong, we will need to strike a suitable balance that will allow us to take effective action against cartels or abuse of market dominance, whilst ensuring that fundamental legal rights are not compromised.

Anti-competitive Conduct

This leads me to the issue of what exactly should constitute anti-competitive conduct - and perhaps just as important, what should not constitute such conduct. Let me start with a couple of important clarifications.

First, size does not matter. Just because a firm is large, this does not mean it is anti-competitive. We have no problem with a firm being in a dominant position in a market, provided that it does not abuse that position. Many firms become large by competing fairly, giving consumers good choices of product and keeping prices reasonable. We should not penalise success.

Second, SMEs have very little to fear from competition law. Almost by definition, small and medium-sized companies do not tend to have market power and are seldom targeted by competition regulators. My colleagues and I have discussed this issue with overseas experts numerous times. The usual advice we receive is that SMEs stand to gain from competition law, as the potential of bigger firms to adopt abusive or other anti-competitive practices is checked by such a law. This is why SMEs in overseas jurisdictions almost always support competition law.

So what types of conduct should we address? I am sure most of you are familiar with the list: price-fixing, bid-rigging, market allocation, abuse of dominance, and so on. In a nutshell, we will aim to address conduct that is likely to substantially lessen competition. When defining such conduct in the law, we will take careful note of accepted best practice in other jurisdictions, and will likely look to take "the road most travelled".

Mergers

One other issue that drew a significant amount of comment during the public consultation exercise was whether or not Hong Kong's competition law should regulate mergers. In this regard, we are aware that most competition laws overseas include merger controls, on the basis that mergers can have the effect of substantially lessening competition in the market. We have also heard the argument that without regulation, companies might get around prohibitions on anti-competitive agreement by merging.

However, we also recognise the argument that in a relatively compact geographical area, such as Hong Kong, there is limited scope for multiple providers of certain products or services to co-exist. In such cases, mergers may be the most cost-efficient way of consolidating the industry and achieving economies of scale.

We will look at this issue carefully before reaching a conclusion, bearing in mind our overall policy objective for competition.

The way forward

Looking ahead, I wish to emphasise once again that the Government has a firm commitment to introducing a general competition law in Hong Kong. The Chief Executive has set the target of introducing the Competition Bill into the Legislative Council in the 2008-09 legislative session, and we are currently on schedule to meet that target.

While some might say that the introduction of a cross-sector competition law is overdue, we recognise that this will be a new and challenging initiative for Hong Kong. Some stakeholders, particularly in the business sector still have concerns about how such a law will work in practice - indeed major trade associations have regularly expressed their views to me on this issue, and I am grateful to them for their continued input.

To help address such concerns, we have decided that, before introducing the Bill, we will issue for public comment a paper that will set out in plain language the proposed detailed provisions of the law. This will help the public to get a better idea of the likely effect of the new law, and allow stakeholders a further opportunity to comment before we finalise the shape of the Bill that we will take to Legco.

Concluding Remarks

Ladies and gentlemen, we all agree that competition is a good thing. It drives innovation, promotes high standards of service, keeps prices at reasonable levels and contributes to the overall dynamism of the economy. Hong Kong has long thrived on competition, and I have no doubt that a well-designed competition law will help us maintain a robust and competitive business environment, for the benefit of everyone.

I have enjoyed talking to you this morning, and I am sure that the distinguished speakers who follow me will provide you with some valuable and thought-provoking ideas. I wish you all a very enjoyable and fruitful two days of discussion. Finally, to our visitors from the Mainland and overseas, I wish you a memorable stay in our city, and I look forward to welcoming you back to Hong Kong in the future.